UK banks downgraded as stress test fears grow
RBS may need billions in extra capital as a result of new stress tests by European authorities
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Friday 14 October 2011
Signs that the Government has become less likely to support lenders led to another credit rating downgrade for Lloyds and Royal Bank of Scotland yesterday against the backdrop of concerns that new European stress tests could leave the sector in need of billions of pounds of extra capital.
The ratings agency Fitch lowered its credit score for both Lloyds and RBS to A from AA-minus, reflecting its view that "support dynamics are changing in the UK". Fitch also put Barclays on negative watch, meaning that it could be downgraded in the future.
"The banking system is not only large relative to the UK economy but there is also more advance political will to reduce the implicit support for the country's banks," Fitch said, citing the Vickers Commission's recommendations to ring-fence retail banks from riskier investment operations.
The move followed similar action by Fitch's rival agency Moody's last week, and came amid fears that RBS could end up needing billions in extra capital as a result of new stress tests by European authorities.
Officials are working on plans to recapitalise the banking system as they seek to protect it from the sovereign debt crisis. The European Banking Authority (EBA), which is studying capital needs at systemically important lenders, is expected to apply hefty discounts to the sovereign bond holdings to assess their ability to withstand the crisis. Reports suggest that it could also raise its threshold for what it considers an adequate capital cushion or core tier one capital ratio to 9 per cent.
With the details still being worked out, Credit Suisse analysts said that, based on the reports and after applying a tougher stress test than that applied by the EBA when it last studied balance sheets in the summer, RBS could need about €19bn (£16.5bn) in extra funds. Germany's Deutsche Bank and France's BNP Paribas could require up to €14bn each, while Société Générale and Barclays "would need roughly €13bn".
But the various moving parts – the final level of discounts on sovereign debt and the required capital ratio are still under discussion – mean that other analysts came to different conclusions. Evolution Securities, for example, said that UK banks had already done the heavy lifting by scrapping dividends and shrinking balance sheets, and did not require additional capital.
The analysis came as JosephAckerman, the chief executive of Germany's Deutsche Bank, warned: "It is not the capital position which is the problem but the fact that sovereign debt as an asset class has lost its risk-free status."
- 1 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 2 Joan Rivers: 'Palestinians deserve to be dead'
- 3 Lady al-Qa’ida: On the trail of Dr Aafia Siddiqui, the world’s most wanted prisoner
- 4 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 5 It's not just the savagery of Isis that is shocking – its weaponry is too
YouTube video posted by Isis militants shows 'execution of 250 Syrian soldiers'
Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
Joan Rivers: 'Palestinians deserve to be dead'
Sir Paul McCartney makes his stance on Scottish independence known
PM sets out tough new anti-terror measures in response to heightened threat
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
- < Previous
- Next >
iJobs Money & Business
Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...
£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...
£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...